I agree and I don't endorse this practice. However, I did apply to three sites in phase I who are in phase II with the same amount of openings so they did not select anyone in phase I. One of the sites actually emailed the night before the ranking that they had decided not to rank applicants for phase I and for me not to rank them in phase I because they were not ranking in phase I. They indicated if I did not match in phase I that I would be able to rank them in phase II. Well, I did match in phase I so I am not involved with phase II. This was a very attractive site thirty miles from where I live that paid twice as much as the internship site I was selected for the phase I match. If they had not emailed me that night they would have been my #1 rank but instead I moved my #2 rank to my #1 rank and this is the site where I matched. Had I left them as my #1 site and they did not rank me it could have resulted in my not being selected in phase I. The rational for sites waiting until phase II is that they know more about funding options as they have another month to determine how many applicants they may select. Some of the phase II sites have opened up additional slots since they know more about their funding.
Related to quality of applicants across the board at this level of training you will not find major difference between applicants in phase I or phase II. Most of us have stellar applications and training and normally the difference among those who are selected versus not selected are very minor.
I agree that very well-qualified applicants participate in both phases of the match, and I also agree that sometimes the difference between a selected and not-selected applicant can be somewhat trivial (particularly between the # 1 and the #2 or #3-ranked applicant at a site).
However, I've heard from multiple internship training directors that there are very real and discernible differences in the quality of applicants they see. That is, not all applicants are created equal. And the wide variance in objective characteristics of said applicants (e.g., number of clinical hours, number and variety of administered assessment measures, number of publications and presentations) support this view.
Regarding your other point, as the poster above me mentioned, even if you had ranked that site #1, based on the algorithm that NMS uses, this shouldn't have affected your chances at matching at your #2 site. Basically, as soon as the computer saw that the #1 site had no slots, they would've matched you to #2, and you would've bumped out anyone else already there whom you were ranked higher than (just as they would've bumped you had they been ranked more highly).
I've heard one faculty member at a site where I worked mention when they participated in the match, they'd heard that your chances of getting a site decreased significantly if you weren't ranked by your #1 site choice. However, I've never been able to find any information that supports this, and it goes against everything APPIC and NMS say about the matching algorithm. NMS are the only ones who absolutely
know the full specifics, but I'm thinking what I heard might've been a misinterpretation of a variety of stats (including the proportion of individuals who match at their #1 vs. their #2, etc.) that has been erroneously perpetuated over the years.
Overall, though, I think it's fairly sheisty that the site mentioned they weren't ranking anyone after having already conducted interviews. By them saying you could rank them in Phase II, it sounds like funding wasn't the primary motivating factor behind that decision.